J.M. Shelat, J.
1. This is a reference under section 66(I) of the Income-tax Act, 1922, at the instance of the Commissioner. The reference arises out of imposition of penalties under section 28(I)(c) of the Act for the assessment years 1952-53 and 1953-54, the corresponding previous years being the years ending March 31, 1952 and March 31, 1953, respectively.
2. The assessee, during the material period, was engaged as an agent and was earning remuneration as such agent and for that purpose had resided at Delhi. For the two assessment years, he filed his returns declaring his income at Rs. 6,000 and odd for the assessment year 1952-53 and Rs. 6,768 for the assessment year 1953-54. In respect of the assessment year 1952-53, he revised his returns at a subsequent date, declaring his total income for that year at Rs. 3,337. It is an admitted fact that he did not maintain any books of accounts in respect of his employment. The returns filed by him were in due course investigated by the Income-tax Officer and in completing the assessments, he brought to tax additional amounts of Rs. 17,390 and Rs. 29,483 for the two years respectively as income from undisclosed sources. The assessment order for the assessment year 1952-53 shows that though the assessee had filed his returns for that year declaring therein only Rs. 3,337 as his total income, it was found by the Income-tax Officer that during that year he had purchased a motor-car for Rs. 10,250, a piece of land for Rs. 9,330 and had commenced construction of a house upon that piece of land. The construction of the house was commenced in November, 1951, that is to say, during the account year 1951-52, and was completed some time in April or May, 1952, during the account period 1952-53. On the discovery by him of the acquisition during the relevant period of these assets, the Income-tax Officer called upon the assessee to furnish information regarding the sources of these expenditures. Thereupon, the assessee made a statement in which he explained that he had taken Rs. 15,250 from his father, Rs. 800 from his wife, Rs. 2,000 from his brother, Rs. 1,000 as loans from one K. D. Mehta and D. Shukla, and, lastly, that Rs. 1,500 were his earnings from races and cards and that the rest of the amount required by him in the acquisition of these assets represented withdrawals from his banking accounts. Except for the sum of Rs. 2,000 said to have been borrowed by him from his brother, the Income-tax Officer rejected the explanation for the rest of the amounts, holding that the explanation given by the assessee was false and unbelievable and added, as aforesaid, Rs. 17,390 in the computation of the total income of the assessee for that year as income from undisclosed sources. For the assessment year 1953-54, the assessee had shown his total income at Rs. 7,150 and his case was that he had, during the relevant account year, worked for two concerns of Bombay, namely, M. Kolman and Paragon Textile Mills. In the returns he had also shown that he had received a sum of Rs. 2,000 being bonus earned by him, for Messrs. Nanavati & Co. in respect of work done for them during an earlier period. The construction of the house was completed in or about April-May, 1952, and in respect of the cost of that construction and the land, the assessee explained that he had taken Rs. 8,000 from his father, Rs. 5,000 from his wife and that the rest represented withdrawals from the bank. The Income-tax Officer rejected this explanation, characterising it as unworthy of belief observing that the assessee had been hard put to explain the sources from which he could incur the cost of construction. He also observed that in explaining the sources from which he got these amounts, he had this time given up some of the items totaling to Rs. 10,330 which he had explained earlier when he gave explanation for the previous assessment year and had added a new source, namely, Rs. 1,400, being the commission earned by him from Diarvi Trading Co. for whom he had acted as the agent for Saurashtra and Kutch. The Income-tax Officer stated that though the assessee showed this sum of Rs. 1,400 as available to him for the construction of the house, he had not included that amount in the returns for that year. The Income-tax Officer also found that the assessee had underestimated the building cost to about Rs. 23,000 and estimated that cost at Rs. 40,000 and taking that figure to be correct and adding Rs. 1,400, being the income not disclosed in the returns, held that the total assessable income against the income disclosed by the assessee namely, Rs. 9,890, was Rs. 40,563. Thus the Income-tax Officer brought to tax additional amounts of Rs. 17,390 and Rs. 29,483 as income from undisclosed sources respectively for the two assessment years. In the appeals filed by the assessee before the Appellate Assistant Commissioner, these amounts were reduced to Rs. 15,245 and Rs. 15,083 respectively. The record shows that the assessee did not file any further appeal from the orders passed by the Appellate Assistant Commissioner and acquiesced in the said amounts. The amount of Rs. 15,083 added for the assessment year 1953-54, however, included Rs. 2,000 received as bonus from Messrs. Nanavati & Co., but since its source was disclosed it could not be said to be income from undisclosed sources and to that extent, the order passed by the Appellate Assistant Commissioner was factually incorrect.
3. On the very day that the Income-tax Officer passed his aforesaid orders, he initiated penalty proceedings against the assessee under section 28(I)(c) and issued notices dated April 3, 1957, and February 20, 1958, for the two assessment years respectively. The assessee, in reply to these notices, furnished his explanation. On August 25, 1958, the Income-tax Officer, after taking into consideration the assessee's explanation, imposed penalties of Rs. 2,682 and Rs. 2,855 as penalties in respect of Rs. 15,245 and Rs. 15,083, they being the amounts held as income from undisclosed sources as finally fixed by the Appellate Assistant Commissioner. An appeal was filed against these orders before the Appellate Assistant Commissioner but that was rejected.
4. During the course of the penalty proceedings before the Income-tax Officer and the Appellate Assistant Commissioner, the assessee took the stand basing it on the Bombay decision in Commissioner of Income-tax v. Gokuldas Harivallabhdas that assuming that the explanation furnished by him was either unsatisfactory or even false, the mere falsity of an explanation given by him during the course of assessment proceedings and the finding by the Income-tax Officer that the added amount represented income from undisclosed sources, were not sufficient for the purposes of section 28(I)(c) and that the penalty proceedings being of a penal nature, the burden was on the department to establish that the said amounts were income of the assessee, which burden could be said to have been discharged only if apart from the explanation there was additional material establishing that it was the assessee's income and that such income was either concealed by him or in respect of which he had given the false particulars. During the penalty proceedings the assessee tendered his explanation on April 30, 1957, and the stand taken by him in that explanation was mainly two-fold, namely, that he had withdrawn rupees fourteen to fifteen thousand from his banking accounts and in addition he had taken Rs. 10,000 from his father. Dealing with this explanation, the Income-tax Officer held that the assessee had, under as many as six heads, made false statements. While accepting the assessee's case that he had taken a sum of Rs. 2,000 from his brother, he observed that as regards moneys taken by the assessee from his father, the assessee had shifted his ground in this explanation from the one taken by him earlier during the assessment proceedings in the sense that whereas his case earlier was that he had taken Rs. 15,250 in the aggregate from his father, in his explanation in these penalty proceedings he had changed his case and stated that he had only taken Rs. 10,000 from his father. Regarding the assessee's allegation that he had withdrawn Rs. 10,000 from the Central Bank of India Ltd., Rajkot, which amount was required by him for the construction of the house, the Income-tax Officer found that this part of the explanation also was false because the officer had discovered on an inquiry from the bank that though the assessee had withdrawn this amount from his account, he had not utilised the amount so withdrawn towards the cost of construction but had instead converted it into a fixed deposit. This was clear from the bank's letter dated November 29, 1957, in which the bank had informed the Income-tax Officer that a short deposit receipt for Rs. 10,000 was issued by the bank in favour of the assessee against withdrawals of the like amounts on March 13, 1952. It was clear from this evidence that the amount of Rs. 10,000 alleged by the assessee to have been available to him towards the cost of construction was not so available and had in fact not been used towards the construction. The Income-tax Officer, therefore, observed that 'By suggesting that the above withdrawal was used for house construction, the assessee has made a false statement. In fact the assessee never disclosed the fact that he ever made a fixed deposit after withdrawing the money (Rs. 10,000)'. According to the Income-tax Officer though the assessee had alleged that his bank balances were available for expenses towards the construction, the assessee had failed to account as to from which source he had met with his personal expenditure. According to the assessee, his personal expenditure came only to Rs. 1,100 per year. That, however, was another false statement made by the assessee, for, whereas he had shown such a small amount as Rs. 1,100 a year as his personal expenditure, he was paying Rs. 1,400 as premium towards his life insurance policy. Considering the style in which the assessee was living, the Income-tax Officer estimated his personal expenditure at nothing short of Rs. 6,000 a year and inferred from that fact that instead of the bank balances being available to him for the construction of the house, they were depleted in meeting his personal expenditure. The Income-tax Officer also found that the assessee's representation that he had borrowed Rs. 1,000 from one K. D. Mehta of Ahmedabad and D. Shukla of New Delhi was also false inasmuch as these names given by the assessee were of non-existent persons. The Income-tax Officer was also of the view that the assessee's representation that he earned about Rs. 1,500 from races and card games was also false. The representation made by the assessee that the main purpose of his stay at Delhi was to work for Messrs. Abdullah Fidaali & Co. was not correct and that the work for Messrs. Abdulla Fidaali & Co. had merely intermittently engaged him and yet the assessee had stayed in Delhi for at least six months, indicating that the long stay at Delhi was necessitated by reason of the fact that the assessee was also working for other parties or concerns. The finding on this part of the case was that 'there is no doubt that the assessee was busy in earning money which he has not disclosed and which has really gone into the cost of construction and which the assessee has been running about to prove by various untrue statements.' The assessee admittedly had received a sum of Rs. 5,000 from Messrs. Abdulla Fidaali & Co. by a cheque dated December 31, 1951. The Income-tax Officer's view, therefore, was that the assessee must have received considerable amounts as remuneration from the different concerns for whom he had worked at Delhi. The conclusion arrived at by him was : 'It would thus be clear that (i) the assessee met his personal expenses, deliberately stated by him at a very low figure, out of concealed income, (ii) the bank balances were not available to him for house construction as alleged, (iii) the story of loan from the father is patently false and the fact of income from race and rummy is deliberately cooked up. In addition the assessee also invited the names of the persons as providing source of income about whose existence there is not the least doubt. It is clear from this order that the Income-tax Officer gave two findings, (a) that the assessee had shifted his case and given different explanations with regard to moneys he was said to have taken from his father. In the assessment proceedings his case was that he took Rs. 15,250 in the aggregate from his father while in the penalty proceedings he changed that case and stated that he took only Rs. 10,000 from his father; (b) that the assessee's case that he worked for Messrs. Abdulla Fidaali & Co. of Bombay only while he was in Delhi was not true and that he had worked for other concerns also and that the amounts which he expended to acquire the car and the land and for the construction work came from income earned while he was in Delhi until about October or November, 1951. These two findings were based on the circumstances mentioned above, namely, that the assessee was not in the full employment of Messrs. Abdulla Fidaali & Co. but had worked for other parties also and that though his work for Messrs. Abdulla Fidaali & Co. was intermittent, he had been paid Rs. 5,000 by that firm alone, that amount of course including his expenses. The finding that the amounts which the assessee had expended towards the acquisition of the car, the land and for the construction of a house came from income earned while he was in Delhi, was the result of an inference drawn by the Income-tax Officer from these circumstances which were in addition to and apart from his finding that the explanation of the assessee was false and unbelievable.
5. In the penalty proceedings for the assessment year 1953-54, the assessee submitted his explanation on March 26, 1958, and contended that he had neither concealed his income nor had he deliberately furnished incorrect particulars thereof, that the amount of Rs. 1,400 added as commission earned by the assessee could not be treated as income as it was a disputed amount lying with him, that the sum of Rs. 2,000 received from Messrs. Nanavati & Co. could not be treated as income from undisclosed sources as the amount had been disclosed by him, that he had clearly shown the sources for the cost of construction incurred by him, and finally that mere rejection of the explanation offered by him would not constitute concealment of income and further that no definite concealment had been found against him by the Income-tax Officer. These grounds were rejected by the Income-tax Officer in paragraph 7 of his order relied upon three circumstances, namely, (a) the changing of his case in regard to his having obtained moneys from his father, (b) abandoning of as many as five sources which had been earlier shown as such, and (c) his failure to include the commission amount of Rs. 1,400 in his returns. Rejecting the assessee's explanation on the grounds aforesaid, the Income-tax Officer came to the conclusion that the assessee had committed the offense under section 28(I)(c) as in the previous year and imposed a penalty of Rs. 2,855 for this assessment year.
6. Against the two orders, the assessee filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner heard the appeals together and passed a common order dated August 18, 1959, dismissing both the appeals. The assessee's case before the Appellate Assistant Commissioner was that the added amounts were considered to be income from undisclosed sources merely on the basis that the Income-tax Officer had not accepted his explanation, that the Income-tax Officer had failed to establish that the amounts treated as income from undisclosed sources constituted his income and were not receipts which were not his income. The assessee, therefore, contended that his case fell within the purview of the decision in Gokuldas Harivallabhdas and that, therefore, the Income-tax Officer was not justified in levying the penalties. The Appellate Assistant Commissioner rejected these contentions, and relying upon a letter written by Abdulla Fidaali & CO. to the effect that the assessee was not their salaried employee and was employed to represent them whenever they found the presence of a representative at Delhi necessary, came to the conclusion that the work done by the assessee at Delhi for that firm was of a minor nature, was not one which was likely to keep him busy for the whole time and yet the assessee had been paid Rs. 5,000. He concluded from these facts that such work only could not have kept the assessee at Delhi for a period of about six months, and, therefore, the appellant must have also served other parties and obtained remunerations from them. On this basis he held that 'the income which has been considered 'to be his income from undisclosed sources' is actually the income of the appellant which he has earned for rendering services of this type, and as such has to be considered as income in the hands of the appellant on that account.'
7. The findings given by the Appellate Assistant Commissioner were that the assessee was giving his services, besides Messrs. Abdullah Fidaali & Co., to other parties during his stay in Delhi, that he worked for the said firm only intermittently, that during the time that he was not working for the said firm, he was working for others, that he could not have lived in Delhi in the style he was living unless his expenditure came to about Rs. 6,000 a year, that his income was more than what was shown by him, and, lastly, that the amounts which were treated as income from undisclosed sources were his actual income and which was concealed by him or in respect of which he had deliberately given inaccurate particulars. He, therefore, held that the contention that the Bombay decision applied was not correct, and concluded by stating that :
'these amounts are not the amounts where the appellant's explanations have not been accepted, but are ones in regard to which the appellant deliberately suppressed information before the Income-tax Officer and the Appellate Assistant Commissioner, Rajkot, and which were payments received for service rendered. And since these are payments received by him for services rendered as would be clear from the appellant's activities right from 1947-48 onwards, I hold that these payments are the income of the appellant which have been concealed and about which inaccurate particulars have been given deliberately by the appellant both for assessment year 1952-53 as well as 1953-54. I, therefore, consider that the appellant comes within the orbit of section 28(I)(c), and a penalty has correctly been levied on him for both the years on this account, because the facts in this case are different than the one decided by the Bombay High Court and referred to by the appellant.'
8. Though the Appellate Assistant Commissioner was not correct with regard to the bonus amount of Rs. 2,000 his finding with regard to the rest was a positive finding that a case of penalty did not rest merely on the ground that the explanation of the assessee was false, but that the moneys spent in acquiring the assets represented his income and that that income was concealed.
9. In a further appeal before the Tribunal, the assessee rested again his case on the Bombay decision and the Tribunal, accepting his contention, allowed his appeal. The Tribunal observed that the two amounts of Rs. 15,245 and Rs. 15,083 represented a portion of the value of the assets acquired by the assessee, the source of which remained unexplained, that the assessee gave a certain explanation with regard to the sources of the sums with which the assets were acquired, that the department might have found the explanation to be unsatisfactory or even false but that would be no ground for levying penalty under section 28(I)(c) as long as the decision in Gokuldas Harivallabhdas held the field. The Tribunal observed that the taxing authorities had brought out several facts which, if sufficiently substantiated, were not very creditable to the assessee, but wound up its order by stating that that was no reason for holding that the provisions of section 28(I)(c) were attracted in regard to the aforesaid two sums and therefore it was not necessary for it to go into those facts for the disposal of the appeals. It is clear that the Tribunal allowed the appeal on the basis that the only evidence before the taxing authorities was the explanation given by the assessee and which was found by them to be false, and that the ratio in the case of Gokuldas Harivallabhdas that if the only evidence before the officer conducting the penalty proceedings consists of such a false explanation, then the mere falsity of that explanation would not necessarily mean that the receipt in question constituted income of the assessee or that he had been guilty of concealment of such income or of giving false particulars of such income.
10. The question that arises is whether the Tribunal misdirected itself in law in applying what it thought was laid down in the case of Gokuldas Harivallabhdas when, as pointed out earlier, there were additional circumstances according to the taxing authorities, apart from the explanation tendered by the assessee. There is no doubt that the Tribunal did not consider the question whether there were facts such additional circumstances and if so, whether they established that the sums held to be income from undisclosed sources constituted the income of the assessee. Before however we proceed to examine this question, it would be necessary to consider the ratio laid down in the case of Gokuldas Harivallabhdas. The assessee there was assessed to tax on an income of Rs. 15,203 which the department held to be income from undisclosed sources. A partnership was being carried on by two brothers, Chimanlal and Manilal. Manilal died in Samvat year 2000. In the account year, Samvat year 2003 corresponding to the assessment year 1948-49, the assessee-firm was constituted by two partners, Chimanlal and Rasiklal, the son of Manilal. Up to Samvat year 2002, the firm carried on business at Nadiad only, but on October 25, 1948, the assessee opened a branch in Bombay and cash credits to the extent of Rs. 15,203 appeared in the books of account of the Bombay branch. When the assessee was called upon to explain this entry, his explanation was that his brother, Chimanlal, had sold the ornaments of his first wife and had kept with him the sale proceeds. After his brother died, his widow continued to remain in the house, but she left after about two years and after she left, the amount was divided half and half between the branch of Manilal and Chimanlal's branch. The Income-tax Officer found this explanation to be false and assessed that amount as income from undisclosed sources. He also instituted penalty proceedings against the assessee and the imposed penalty of Rs. 4,000. The Appellate Assistant Commissioner confirmed this order, but when the appeal was heard by the Tribunal, two members of the Tribunal took the view that the penalty could not be imposed upon the assessee but the third member gave a dissenting opinion whereupon a reference was made by the Tribunal to the High Court. The High Court affirmed the view of the two members of the Tribunal, holding that the proceedings under section 28(I)(c) were not justified. The High Court held that penalty proceedings were penal proceedings and whereas assessment proceedings under section 23 were taxing proceedings, those under section 28 are in the nature of criminal proceedings and that, therefore, the burden of proving that an offense was committed under section 28 was on the department and the department had to show that the added amount was the assessee's income and that that income was concealed or false particulars about it were given by the assessee. The High Court also held that from the mere unsatisfactory nature or even the falsity of the explanation given by the assessee, it would not be possible to conclude that the receipt in question was income, and if the explanation of the assessee was the only evidence, once it was found that it was false it was eliminated and there would be no further materials on which it could be held that it was income and not anything else. But there were two more propositions also laid down in this decision. One was that if there was any other evidence besides the assessee's explanation, the Income-tax Officer could rely upon it and satisfy himself whether the receipt in question amounted to income of the assessee. The High Court, relying on Dwarka Prasad Sheokaran Das v. Commissioner of Income-tax, decided by the Allahabad High Court, also held that the findings in the assessment proceedings would constitute materials upon which the Income-tax Officer could act, but such findings were not res judicata and the two proceedings being independent of each other, the Income-tax Officer could not consider such findings binding or conclusive if the assessee disproved them, or showed them to be incorrect by leading evidence. Therefore, the decision in Gokuldas Harivallabhdas does lay down that though mere falsity of an assessee's explanation would not conclude that the receipt constitutes income of the assessee, if there is other additional material, the Income-tax Officer is entitled to satisfy himself from such additional material that the receipt constitutes the assessee's income and furthermore, that the findings in assessment proceedings, though not res judicata, form relevant materials on which the department can act. What the Tribunal seems to have done in this case was that it set aside the order of the Appellate Assistant Commissioner on the mere ground that mere falsity of the assessee's explanation would not conclude that the amounts held to be income from undisclosed sources constituted the assessee's income. Of course, according to the Bombay decision, it would not conclude, but that was not the only thing that the decision laid down. On the facts before the High Court, the only evidence was the explanation of the assessee which was not believed and it was, therefore, that the High Court held that its mere falsity would not conclude the question whether the receipt shown in the assessee's books of account as cash credits constituted the assessee's income. What the Tribunal missed in the present case was that the decision also laid down that if there was other evidence, the Income-tax Officer could consider it and, if satisfied, come to the conclusion that the receipt constituted income. Even though, as stated earlier, according to both the Income-tax Officer and the Appellate Assistant Commissioner, there were additional circumstances, the Tribunal failed to consider them to satisfy itself whether they established and, if so, whether they would also establish that the amounts held to be income from undisclosed sources constituted the assessee's income. The Tribunal, therefore, in our view was in error in so disposing of the appeal.
11. The Bombay decision being one of a date prior to May 1, 1960, has to be held binding upon us. But the learned Advocate-General canvassed on behalf of the department a wider contention and argued that that decision was no longer good law and binding upon us in view of certain decisions of the Supreme Court. He also argued that the approach of the High Court of Bombay in that case that the proceedings under section 28 were penal proceedings was not correct and his contention was that the character of the two proceedings was not fundamentally different, than both of them related to the machinery of assessment and that that being so, penalty imposed under section 28(I)(c) was no more than liability to pay additional tax which is designated in the section as penalty. He also urged that the provisions of section 28(I)(c) and the defaults enumerated therein related to the process of assessment and that the imposition of penalty by virtue of such defaults was to recoup loss to the revenue. Finally, he urged that the words 'penalty' as used in section 28 was used in a generic sense and not in the sense it was urged in a penal state. His alternative contention was that, even if we were to regard the Bombay decision binding upon us, the Tribunal in any event had not applied the decision in Gokuldas Harivallabhdas correctly and that the Tribunal, instead of disposing of the appeal on the mere ground that falsity of the explanation of the assessee was not sufficient, ought to have considered the additional circumstances found by the Income-tax Officer and the Appellate Assistant Commissioner and ought to have decided whether they were established and, if so, whether the assessee could be said to have concealed the income or deliberately given inaccurate particulars regarding such income.
12. In support of his first contention, the learned Advocate-General relied on the Allahabad decision in Lal Chand Gopal Das v. Commissioner of Income-tax as supporting his contention that the Bombay view that penalty proceedings are penal proceedings and that therefore the burden of showing that the sum held to be income from undisclosed sources is the income of the assessee is on the department, is no longer good law. He, however, made it clear that he relied on the Allahabad decision only for the purpose of showing that at least one High Court had expressed the view that certain decisions of the Supreme Court had held the proceedings under section 28(I) cannot be regarded as penal proceedings and that the Allahabad view was that the dictum in Gokuldas Harivallabhdas case that they were penal proceedings no longer good law. The facts in Lal Chand's case were that during the assessment year 1946-47, the Income-tax Officer discovered certain cash credits in the anamat khata of the assessee and added thereupon Rs. 5,000 as concealed income of the assessee from business. On appeal before the Appellate Assistant Commissioner, this addition was confirmed and no further appeal to the Tribunal was filed. As observed by the Appellate Assistant Commissioner, no evidence was given by the assessee to explain the nature and source of the amount of Rs. 5,000. The assessment order showed that the silver account produced by the assessee was rejected by the Income-tax Officer on the ground that it disclosed too low a rate of profit, and even though there were considerable purchases and sales of silver ornaments, the details and names of sellers or the purchasers were not noted in the account books and the profits of the silver sales had to be computed by the application of a rate. In due course, a notice under section 28(3) was issued to the assessee to show cause why penalty should not be imposed upon him under section 28(I)(c). The only explanation given by the assessee in response to that notice was that due to lapse of four years' time since the date of the deposit, he could not remember the names of the persons from whom the temporary deposits were received. This explanation was rejected as fallacious, the Income-tax Officer observing that if the assessee wanted to disclose the source from which the money was received, it could have been very easy for him to have noted down the names in the account books and information could have been traced after the lapse of any amount of time. When the Income-tax Officer imposed penalty, he took into account, besides the falsity of the explanation of the assessee, three further pieces of evidence which were not taken into account by him when he had subjected the aforesaid amount to income-tax. These three pieces of evidence were (1) the falsity of the assessee's explanation, (2) the past unclean record of the assessee, and (3) the present unsatisfactory state of the assessee's account books. The Appellate Assistant Commissioner, in appeal against the order of penalty, said that the names of the alleged depositors were not mentioned before the Income-tax Officer in spite of specific directions given to the assessee and were also not disclosed even at the time of the appeal. In the circumstances, the only inference according to him was that these deposits were not deposits from outsiders, but the appellant's own money in the nature of business profits introduced into the books and described as receipts from byoparies and which was subsequently withdrawn after some time. The assessee went up in further appeal but the Tribunal rejected his explanation that after the lapse of four years, he could not remember the names of the depositors, as being no explanation at all. The High Court noted that the basis of the finding of the authorities below that the assessee concealed the particulars of his income or deliberately furnished inaccurate particulars, was not merely the finding on the materials in the assessment proceedings, but also certain additional materials in the penalty proceedings. It would, therefore, be correct to say that the case before the High Court was not one depending only on the falsity of the assessee's explanation, but also in addition thereto certain other materials found in the penalty proceedings. However, there is no gainsaying that the High Court has observed that the Supreme Court decision in C. A. Abraham v. Commissioner of Income-tax casts doubt on the Bombay view that penalty proceedings are penal proceedings. The question, therefore, is whether the Supreme Court decision relied upon in Lal Chand Gopal Das case has in fact held that penalty proceedings are not penal proceedings and that, therefore, the Bombay view does not hold the field any more.
13. In the case of C. A. Abraham the assessee and one Thomas carried on business in foodgrains in partnership in the name and style of M. P. Thomas & Company. Thomas died on October 11,1949. For the relevant account years, the appellant, Abraham, submitted as a partner returns of the income of the firm as unregistered firm. In the course of the assessment proceedings, it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose substantial income earned therein. Thereupon, the Income-tax Officer assessed the suppressed income of the firm in respect of the assessment year 1124 M.E. under the Travancore Income-tax Act and in respect of the assessment years 1949-50 and 1950-51 under the Indian Income-tax Act, and also issued notice under section 28 in respect of the years 1949-50 and 1950-51 and under section 41 of the Travancore Income-tax Act for the year 1124 M.E., requiring the firm to show cause why penalty should not be imposed. After considering the explanation of the appellant, the Income-tax Officer imposed certain penalties for the three assessment years. The appellant then applied for a writ of certiorari for quashing the orders of assessment and imposition of penalty upon the contention that after the dissolution of the firm by the death of Thomas in October, 1949, no order imposing penalty could be passed against him. That application was rejected by the High Court following the decision in Mareddy Krishna Reddy v. Income-tax Officer, Tenali, and against the order dismissing the petition, Abraham filed an appeal before the Supreme Court. The Supreme Court held that there was material to show that the conditions of section 28(I)(c) were fulfilled, but the contention urged before and dealt with by the Supreme Court was that even if the conditions of section 28(I)(c) were fufilled, but the contention urged before and dealt with by the Supreme Court was that even if the conditions of section 28(I)(c) were fulfilled, the assessment proceedings and the penalty proceedings being distinct proceedings, section 44 could be resorted to only for assessing tax due by a firm, business whereof had been discontinued, but a penalty order would not fall under the scope of section 44. Dealing with this contention, the Supreme Court observed that section 44 set up machinery for assessing the tax liabilities of firms which had discontinued their business and provided for three consequences, (I) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner was liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner was liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter IV, so far as may be, applied to such assessment. The Supreme Court observed that the liability declared by section 44 was undoubtedly to assessment under Chapter IV, but the expression 'assessment' used therein did not merely mean computation of income, and that the expression 'assessment' was used in the Income-tax Act, with different connotations. At page 430 of the report, it has been stated that the expression 'assessment' used in the various sections of the Act was not used merely in the sense of computation of income and there was no ground for holding that when by section 44, it was declared that the partners or members of the association should be jointly and severally liable to assessment, it was only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof; nor had the expression 'all the provisions of Chapter IV shall so far as may be apply to such assessment' a restricted content, for, in terms the section said that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business. The learned Advocate-General in particular emphasized the observations there made that by section 28, the liability to pay additional tax which was designated as penalty was imposed in view of the dishonest and contumacious conduct of the assessee. The Supreme Court, however, also added that it was true that the liability arose only if the Income-tax Officer was satisfied about the existence of the conditions which gave him jurisdiction and the quantum thereof depended upon the circumstances of the case. The penalty also was not uniform and its imposition depended upon the exercise of discretion by the taxing authorities. Nevertheless, it was imposed as part of the machinery for assessment of tax liability. The Supreme Court held, on a consideration of the terms of section 44, that the legislature had enacted by that section that the assessment proceedings might be commenced and continued against a firm of which business was discontinued as if discontinuance had not taken place. It was enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of the firms and by a fiction, the firm was deemed to continue after discontinuance for the purpose of assessment under Chapter IV. At pages 431 and 432 the Supreme Court approved the construction of section 44 by the Andhra High Court in Mareddi Krishna Reddy's case, where it has been observed as follows :
'Section 228 is one of the section in Chapter IV. It imposes a penalty for the concealment of income or the improper distribution of profits. The defaults made in furnishing a return of the total income, in complying with a notice under sub-section (4) of section 22 or sub-section (2) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section. The defaults enumerated therein relate to the process of assessment. Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV.'
14. It is true that at page 430 of the report, the Supreme Court has used the expression 'liability to pay additional tax which is designated penalty', which is relied upon by the learned Advocate-General as indicating the nature of penalty under section 28(I)(c) and the decision also states that it is imposed as part of the machinery for assessment of tax liability, but at the same time, it should be observed that the Supreme Court has also stated (a) that the liability under section 28(I)(c) arises on the existence of the conditions therein set out, and (b) that the penalty is not uniform, and (c) that its imposition depends upon the exercise of discretion by the taxing authorities. In the passage cited with approval from the decision in Mareddi Krishna Reddy's case also, Subba Rao C.J., as he then was, has stated that the defaults enumerated in section 28 relate to the process of assessment and therefore can be said to apply an assessment under Chapter IV. But he also has observed that section 28 imposes a penalty and what the section did was to penalise the defaults therein set out. It will be seen that in both the decisions, the problem was as regards the scope of section 44 and whether an order under section 28 fell within the expression 'assessment' as used in section 44. Two more decisions relied on in connection with this contention were Commissioner of Income-tax v. Bhikaji Dadabhai & Co. and Thomas Dana v. State of Punjab. In the case of Bhikaji Dadabhai & Co. also, the controversy was with regard to the word 'assessment' used in section 13(I) of the Finance Act, 1950, which, while repealing the Hyderabad Income-tax Act, saved that Act for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year for the purposes of assessment under the Income-tax Act, 1922. Though the Hyderabad Act, therefore, ceased to have effect as from April 1, 1950, its operation was kept alive in respect of levy, assessment and collection of income-tax and super-tax in respect of periods prior thereto and for which liability to income-tax and super-tax could not be imposed under the Income-tax Act. Relying upon its decision in Abraham's case and the dictum of the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas, the Supreme Court disagreed with the High Court's view that by saving the Hyderabad Act for the purposes of levy, assessment and collection of income-tax and super-tax, though the entire procedure for imposing the liability to tax and for collection of tax was saved, penalty not being tax the provisions relating thereto were not saved. The High Court, in coming to this conclusion, appears to have been impressed by the fact that the Hyderabad Act dealt with the liability to pay income-tax and penalty in distinct provisions, and therefore felt that if the legislature intended to keep alive the Hyderabad Act for the levy of penalty also, it could have said so in clear terms instead of limiting the operation only to levy, assessment and collection. The Supreme Court held that the High Court erred in holding that proceedings for the imposition of penalty could not be continued after the enactment of section 13(I) of the Finance Act, 1950, and that the fact the Hyderabad Act had distinct provisions regarding recovery of tax due and penalty did not make any difference and that that fact had not altered the true character of the penalty imposed under the two Act, namely, that the penalty was an additional tax imposed under the two Acts, namely, that penalty was an additional tax imposed upon the person in view of his dishonest or contumacious conduct. It will be seen that in this decision also, the Supreme Court was again dealing with the question as to the scope and extent of the expression 'assessment' in the light of the fact that the Income-tax Act as also the Hyderabad Act used that expression in different connotations, sometimes as meaning only the computation of income, sometimes determining what the amount of tax was and sometimes the entire procedure for imposing liability upon the taxpayer. Undoubtedly, it has been stated in this decision also that the true nature of penalty under both the Acts was an additional tax, but it is also stated that such additional tax is imposed upon a person in view of his dishonest or contumacious conduct, and as was stated in Mareddi Krishna Reddy's case, a penalty is provided for penalising defaults set out in section 28 of the Act. The learned Advocate-General also relied upon certain observations made by the Supreme Court in the case of the Thomas Dana v. State of Punjab, which distinguished proceedings before the customs authorities under section 167(8) of the Sea Customs Act, 1978, and a prosecution within the meaning of article 20(2) of the Constitution. The learned Advocate-General in particular relied upon the observations made at page 382 of the report, where the Supreme Court has observed :
'A person may be guilty of certain acts which expose him to a criminal prosecution for a criminal offense, to a penalty under the law intended to collect the maximum revenue under the taxing law, and/or at the same time, make him liable to damages in tort. For example, an assessee under the income-tax law, may have submitted a false return with a view to defrauding the revenue. His fraud being detected, the taxing officer may realise from him an amount which may be some multiple of the amount of tax sought to be evaded. But the fact that he has been subjected to such a penalty by the taxing authorities, may not avail him against a criminal prosecution for the offense of having submitted a return containing false statements to his knowledge.'
and where the Supreme Court has characterised proceedings before the customs authorities as proceedings in the nature of revenue proceedings. The learned Advocate-General argued on the strength of these observations that penalty proceedings under section 28 of the Act are in the nature of assessment proceedings and, therefore, the rule as to the onus of proof laid down in the Bombay decision would not be apt and would not be applicable. But it must be remembered that the Supreme Court in that case was dealing with the contention as to double jeopardy and the observations relied upon by the learned Advocate-General were made to illustrate the distinction between a prosecution within the meaning of article 20(2) and a proceeding before customs officer under section 167(8) of the Sea Customs Act. The question before the Supreme Court was not one arising under section 28 of the Income-tax Act and furthermore the decision nowhere states that the provisions of section 167(8) of the Sea Customs Act are not of a penal nature. Though proceedings under section 167(8) of the Act are, as observed there, in the nature of revenue proceedings, it is clearly stated that penalties which a customs officer would impose under that section are intended not only to recoup the loss of revenue resulting from such infringement but also to prevent a recurrence of such infringements. It follows that so far as the latter object is concerned, the provisions would, at any rate, be penal in nature and the onus of proof of an infringement thereof would be upon the customs authorities.
15. Though penalty proceedings under section 28 of the Act are included in the expression 'assessment' and the section finds its place in the chapter dealing with assessment and the true nature of penalty as held by the Supreme Court is additional tax, it is clear that penalty is imposed for defaults enumerated in the section. The imposition of it is, in the very nature of the defaults, not uniform and is left to the discretion of the Income-tax Officer, depending upon the amount of income concealed or the nature of the false particulars given in respect thereof. Even if it can be said that the provisions are intended to recoup revenue which was sought to be evaded, the provisions of section 28 are enacted also as a deterrent against recurrence of such defaults. Furthermore, in none of these decisions, the problems arose as to the character of penalty proceedings and as to onus of proof, nor has the Supreme Court dealt with these problems in any of these decisions. We cannot, therefore, read into these decisions as the Allahabad High Court has done, a view expressed by the Supreme Court which would either militate against or impliedly reverse the view taken in the case of Gokuldas Harivallabhdas.
16. It was, however, contended by the learned Advocate-General that whereas the provisions as to penalty under section 28 are in Chapter IV which deals with deductions and assessment, the legislature has provided a separate chapter in Chapter VIII which deals with offenses and prosecutions relating to them and that, therefore, if the legislature had intended the provisions of section 28 to be of a penal nature, they would have found their place in Chapter VIII and not in Chapter IV. In our view, it makes no difference whether section 28 is situated in one chapter or the other. What has to be seen is the true nature of the penalty, that is to say, whether the provisions of section 28 are penal in character or not. If they are, clearly an assessee is not expected to prove that he has not committed any of the defaults set out in section 28 and the burden to prove that he has committed any of such defaults would be upon the department. In our view, there is no validity in this contention. Since the decisions cited by the learned Advocate-General do not militate against the view in the Bombay decision, it cannot be said to have been impliedly reversed. We have, therefore, to treat that decision as binding upon us. But apart from the decision being binding upon us, we may observe with respect that the decision lays down a wholesome principle and, in our opinion, a correct one.
17. Before we complete our consideration of this point, we must refer to a judgment of the High Court of Madras in P. K. Kalasami Nadar v. Commissioner of Income-tax. The facts in that case were somewhat similar to those in the Bombay decision in Gokuldas Harivallabhdas. The assessee, who was a trader in grocery, also carried on business as a public carrier running the service of transport by lorries. In respect of assessment year 1950-51, he submitted a return of his total income as Rs. 7,113 without including his income from the lorry business. The lorry business was run both in his name and in the name of his minor son. In response to a notice issued in the course of assessment proceedings, he furnished details of profits from his lorry business and the assessing officer treated the information as a return of his income from the lorry business. Two credit entries in favour of the assessee of Rs. 26,360 and Rs. 15,000 were found in the accounts of the lorry business and the aggregate of these amounts was treated as income of the assessee from undisclosed sources of remittances from Burma. This was done because the assessee claimed to have owned properties in Burma. According to him, he left Burma during the second world war and managed to reach India. His case was that after the termination of the war he went back to Burma and sold his properties, and explained the two cash credits in the books of account as representing moneys brought from Burma after the disposal of his capital assets in that place. Except his statement, there was no proof of the source of the money covered by these cash credits, and the taxing authorities treated this as income from undisclosed sources and assessed him accordingly. Notice was issued to the assessee to show cause why penalty should not be imposed upon him on the ground of concealment of income under the camouflage of credit entries in his favour in the accounts of the lorry business run in the name of his son. The assessee repeated his version that the cash credits did not represent taxable income in his hands as they were amounts brought to India by effecting sale of his land in Burma. He did not, however, produce any other evidence in support of his version. The Income-tax Officer held that the assessee was liable to the imposition of penalty as he came within the mischief of section 28(I)(c), and that order was sustained both by the Appellate Assistant Commissioner and the Tribunal, though with some modifications. Before the High Court, the assessee urged that penalty proceedings being quasi-criminal in character, the charge under section 28 had to be brought home to the assessee by positive evidence adduced by the department and that there being no such positive evidence, the order imposing penalty was invalid. The High Court, in dealing with this contention, held that section 28 was a penal provision of law intended to punish tax-dodgers for their evasiveness and fraudulent misdeeds, screening taxable income from taxation, and that the proceedings for the levy of penalty were quite clearly in the nature of criminal proceedings. The department was the prosecutor and the assessee was the culprit charged, and unless the charge was established or proved the alleged delinquent would go scot-free as he could not be called upon to establish his innocence. The High Court also referred to the decision in Gokuldas Harivallabhdas, and observed that the general proposition of law laid down in that case regarding the nature of the penalty proceedings under the Act had their concurrence. But the High Court then proceeded to say that the fact that the burden of proof was on the department did not conclude all questions, and held that considering the penal nature of the proceedings, the facts before the Income-tax Officer must establish a high degree of probability of the assessee being guilty of the charge against him. The High Court then observed, differing from the Bombay view in Gokuldas Harivallabhdas' case, that in the case before them, the cash credits in the assessment proceedings, which had then become final, were treated as income liable to tax. The finding against the assessee would not of course conclude the question whether the amounts constituted his income or not, and it would have been open to the assessee even in proceedings under section 28 to show that they were not his income and the department could not have prevented him from adducing proof in that behalf holding that a different view had been taken in the assessment proceedings. The High Court then observed that the department, however, was not precluded from relying upon the finding in the assessment proceedings to establish, prima facie, that the cash credits represented his income, and the learned judges said that they were unable to see why an inference that the assessee deliberately furnished inaccurate particulars of his income should not be drawn from the fact that the sum of Rs. 41,360 was shown as mere cash entries in the business accounts, that the department found that it was taxable income, and that the assessee was unable to sustain the position that it represented capital and not income.
18. The question, however, over which we find ourselves in difficulty in agreeing with this part of the decision is whether the department can rely on the finding in the assessment proceedings as prima facie proof that the cash credits in the assessee's books were his income and then drew an inference as to his guilt from the fact that, (a) the assessee had entered the disputed amounts as cash credits in his books, (b) that the department had found it to be taxable income, and (c) that the assessee had been unable to sustain that the amount was capital and not income. Before one accepts the position that the finding in the assessment proceeding that the amount is income from undisclosed sources is prima facie evidence in penalty proceedings, unless the assessee successfully shows it to be incorrect by leading evidence, would it not be better to ask oneself as to what is the nature of such a finding in the assessment proceedings That finding no doubt is that it is income from undisclosed sources. But such a finding is arrived at on the ground that though the assessee had special knowledge about the disputed amount and could alone explain it, he had failed to prove that it was capital receipt, by giving an unsatisfactory or even a false explanation, and his failure would entitle the Income-tax Officer to give a finding that it is not capital, as it has not been proved to be so, but income from some undisclosed source. But since the High Court agreed with the Bombay view that penalty proceedings are proceedings which are distinct from assessment proceedings and are of a penal nature and the burden of proof under section 28 is upon the department, would it be correct to say that such a finding in assessment proceedings would prima facie establish in the penalty proceedings that the disputed amount was the assessee's income and that as the assessee had shown the amount as cash receipt and the department had found it to be taxable income and further that the assessee had been unable to sustain the position that it represented capital and not the income, would entitle the Income-tax Officer to infer that the assessee was guilty of the charge under section 28. With the greatest respect, to say that an inference of giving false particulars of income can be drawn from the fact that the assessee had made such cash entries, would be begging the question, for, the disputed amount might still be capital and not income except that the assessee had not given for his own reasons a true explanation regarding it. His mere failure to explain, surely, would not in law turn capital into income. Is it so impossible that though a disputed amount is in fact a capital receipt, an assessee for some reason of his own may not wish to reveal the true reason and may give an unsatisfactory or even a false explanation and that reason is then not accepted and the Income-tax Officer thereupon treats it as income from undisclosed sources. But though it may be so treated for the purposes of assessment proceedings where, as aforesaid, the burden is upon the assessee to explain, can that finding be treated as establishing, even prima facie, the amount as income of the assessee in penalty proceedings where the golden thread in British Criminal Jurisprudence spoken of by Lord Sankey in Woolmington's case, has commended itself to the High Court The observations of the High Court that such a finding in the assessment proceedings would prima facie establish that the disputed amount is income of the assessee, unless it is shown by the assessee in the penalty proceedings to be incorrect, would in our view amount to throwing the burden of proof upon the assessee because unless the finding is shown to be incorrect by him, it can be used against him as prima facie proving that the amount in question is his income. The proceedings being of a penal nature and the burden being upon the department, it would be but legitimate to say that mere falsity of an explanation given in assessment proceedings would not necessarily mean that the disputed amount represented income and that apart from that circumstance, there must be some additional material from which the Income-tax Officer has to satisfy himself whether the assessee was guilty of the charge against him under section 28.
19. But that does not mean that because an assessee chooses to give a false statement or declines to give any explanation, no penalty proceedings can ever be taken against him. The question whether an assessee is guilty of any of the defaults enumerated in section 28 is always a question of fact and the question of guilt must depend upon the facts and circumstances of each case. If, therefore, there are additional circumstances or materials before the Income-tax Officer besides the explanation given by an assessee in the assessment proceedings, action under section 28 would be impossible, if such circumstances or materials and reasonable inferences drawn from them are sufficient in the view of the Income-tax Officer to establish default under section 28.
20. The learned Advocate-General, though not correct in his first submission, was, however, on firmer ground in his second submission. It is clear from the orders of the Income-tax Officer and the Appellant Assistant Commissioner that those officers had found, besides the falsity of the assessee's explanation tendered in the assessment proceedings, certain facts and circumstances which, according to them, constituted additional circumstances, all of which would, if found to have been established by the Tribunal, be relevant and admissible. These are, (1) that the assessee, besides acting as the agent of the firms admitted by him, was working for other parties also, which would mean that he had not disclosed remunerations earned by him from them; (2) that the assessee had shifted his grounds as it suited him; (3) that some of the sources of moneys spent by him on the construction of the house, which he had first set out, were subsequently abandoned by him, and (4) that the commission amount of Rs. 1,400 shown by him as available for the cost of construction was admittedly not disclosed in the returns. If the Tribunal had considered these additional circumstances or materials and was satisfied that they were established, it was possible that they might have led the Tribunal to come to a finding that the added amounts constituted income of the assessee and that there was concealment of his income or that he was guilty of furnishing false particulars regarding his income. Unfortunately, the Tribunal did not consider whether these circumstances, as found by the taxing authorities, were in fact established or not and, if so, whether they would establish the charge against the assessee. As stated earlier, what the Tribunal did was to set aside the order of the Appellate Assistant Commissioner on the mere ground that the falsity of the assessee's explanation given in the assessment proceedings were not, according to the Bombay decision, sufficient. The Tribunal being the fact-finding authority ought to have entered into the circumstances which the taxing authorities had found to be additional circumstances and ought to have determined whether they were established and, if so, what would be their effect, whether they together with the assessee's explanation in the penalty proceedings established his guilt or not. The failure to do so was, in our view, failure to exercise jurisdiction. The Tribunal did not enter into that question presumably on a misunderstanding of the Bombay decision and its failure to appreciate that the decision in Gokuldas Harivallabhdas' case itself states that such additional circumstance, if any, can be gone into and acted upon. If the Tribunal had considered these circumstances, it is possible that it might have agreed with the taxing authorities that there was sufficient data establishing the default by the assessee, namely, the admitted fact of acquisition of assets coupled with the circumstance of an attempt to dwindle down the figure of personal expenditure, the fact of the assessee acting for several concerns as a contact man, the change of case from time to time, the non-disclosure of the commission amount of Rs. 1,400, the abandoning of his case for sources for Rs. 10,000 and odd and such other additional materials that may be found by the Tribunal. In our view, there was thus an error of law in the Tribunal's failure to consider this aspect of the case.
21. In our view, the questions framed by the Tribunal do not bring out the true controversy between the parties and, therefore, we propose to reframe the questions. The questions so reframed would be :
'(I) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in setting aside the orders of penalty for the assessment years 1952-53 and 1953-54 by relying on the decision in Commissioner of Income-tax v. Gokuldas Harivallabhdas
(2) Whether the Tribunal erred in its application of the principle laid down in the aforesaid decision ?'
22. Our answers to both the questions are in the affirmative. The assessee